Once you have made the decision to purchase a building space, it is a good idea to determine how you will be paying for the property before getting too involved in the process. There are numerous sources and means to fund the purchase. Some of the more popular methods are listed below:
SBA 504 Loan
Provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower. The maximum SBA debenture generally is $1 million (and up to $1.3 million in some cases).
See web site here, SBA 504 Loan
Adjustable Commercial Mortgage
A commercial loan in which the interest rate is adjusted periodically to a specific index such as Prime or T-Bills.
Construction Loan and Take-out
A commercial construction loan tied in with a pre-arranged takeout loan in place.
Fixed Rate Commercial Mortgage
An interest rate that remains constant throughout the term or the commercial mortgage.
Hard Money Loan
Commercial loans from private lenders based primarily on the property value.
Bridge Loan
A short term, interim or project type commercial loan. Usually 2 years or less.
Joint Venture
A financial partner who has a financial interest in the development or ownership of the property.
Sale-Leaseback
Lender purchases land and leases back to borrower for a fixed rent plus other considerations. This type of commercial mortgage can produce more dollars than a typical commercial mortgage depending on strength of the borrower.
Second Mortgage
A commercial loan secured by equity, but behind that of the first lien.
Wraparound Mortgage
Lender makes a second mortgage and assumes the first mortgage.
General Lending Criteria:
Banks will usually not finance more than 75% of the appraised value of the property. A SBA 504 loan requires a 10% down payment from the borrower.
Properties must show sufficient debt-repayment ability by way of a debt coverage ratio of 1:20X or higher on income.
In cases where the property is occupied by a single tenant, the lender will want to see the financial strength of the tenant.
You will need to provide an updated rent roll to the lender, which might be required to be updated yearly.
The lender will most likely require an environmental phase-I audit to discover any possible contamination of the site.
Personal guaranties of the principal owners will probably be necessary.
